Refunds and collusion in service industries |
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Authors: | Staffan Ringbom Oz Shy |
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Affiliation: | aDepartment of Economics, Swedish School of Economics, P.O. Box 479, 00101 Helsinki, Finland;bDepartment of Economics, University of Michigan, Ann Arbor, MI 48109-1220, USA |
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Abstract: | This paper investigates industry-wide agreements on joint refund policies, and how they influence price competition. We compute the profit of fully-colluding, competing, and semicolluding service providers who offer refunds to those consumers who do not show up at the time of service. Our main findings are that both a monopoly serving all consumer types, and semicollusive service providers offer full refunds. In contrast, competing service providers offer only partial refunds. Finally, refund policies are investigated under moral hazard behavior. |
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Keywords: | Refunds Partial refunds Collusion on refunds Moral hazard |
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